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Saving and Demographic Change: The Global Dimension. Barry Bosworth (Brookings Institution) And Gabriel Chodorow-Reich (Brookings Institution). Bernanke: Excess Global Saving. Increased global supply of saving “global saving glut” - PowerPoint PPT Presentation
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Saving and Demographic Change: The Global
DimensionBarry Bosworth
(Brookings Institution)And
Gabriel Chodorow-Reich(Brookings Institution)
Bernanke: Excess Global Saving• Increased global supply of saving
– “global saving glut”– Linked to demographic change in major
industrial countries.– Falling real interest rates.
• Two perspectives on U.S external deficit– Why do Americans save so little?– Why does the rest-of-world save so much?– Bernanke focused on second.
Current Account by Region(Percent of World GDP)
Region 1980-89 1990-94 1995-99 2000-04 2005p
U.S. -0.45 -0.22 -0.51 -1.37 -1.81
Japan 0.26 0.40 0.34 0.35 0.39
Europe -0.04 -0.13 0.28 0.17 0.16
Emerging Asia 0.02 0.01 0.14 0.38 0.55
Emerging Latin America -0.11 -0.11 -0.17 -0.04 0.08
Middle East 0.08 -0.09 0.01 0.17 0.44
Objective
• Explore linkages between demographic change and national rates of saving and investment.– Changes in child and aged-dependency rates– Distinguish between effects on public budgets
and private sector saving.– Regional variations– Future Implications
Dataset
• 85 Countries (95% of World GDP) Covering 1960-2004
• 40 Countries (91% of World GDP) with Public and Private Saving
• Sources: OECD, World Bank, IMF, and country statistical offices
• United Nations, World Population Prospects
• All data converted to 5 year averages
Recent Trends
• Offset to US deficit is in Asia and OPEC• Global change is concentrated on
investment side– Declining saving and investment in other
industrial countries– No investment decline in US– Sharp drop in investment in Asia
Industrial Countries Excluding U.S.
10
15
20
25
30
35
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Saving
Investment
Percent of GNI
United States
10
15
20
25
30
35
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Saving
Investment
Percent of GNI
Emerging Asia
10
15
20
25
30
35
40
1980 1985 1990 1995 2000 2005
Saving
Investment
Percent of GNI
Asia financial crisis
The Fixed Effects Model
Where Sit is saving in country i at time t;Xit are a set of country-specific economic factors
that change over time;Ci are factors that are largely time-invariant but vary
across countries;Pit capture the age structure of the population;And uit is an uncorrelated error term.
ititiitit uPCXFS ),,(1
Savingit = β1*dgdpit + β2*dgdpit-1 + β3*Ci +β4*Dit + uit
dgdpit is growth of real GDP;
dgdpit-1 is 5-year lag of real GDP growth;
Ci is country-specific categorical variable;
Dit is third-degree polynomial approximation
of age profile, as used by Higgins (1998).
Coefficients on National Saving
-3
-2
-1
0
1
2
0-14 20 - 24 30 - 34 40 - 44 50 - 54 60 - 64 70up
age group
coef
ficie
nt
85 Countries Industrial Countries Asia
Coefficients on Private Saving
-3
-2
-1
0
1
2
0-14 20 - 24 30 - 34 40 - 44 50 - 54 60 - 64 70up
age group
coef
ficie
nt
85 Countries Industrial Countries Emerging Markets
Coefficients on Government Saving
-3
-2
-1
0
1
2
0-14 20 - 24 30 - 34 40 - 44 50 - 54 60 - 64 70up
age group
coef
ficie
nt
85 Countries Industrial CountriesEmerging Markets Asia
Coefficients on Saving and Investment, 85 Countries
-3
-2
-1
0
1
2
age0-14 age20 -24
age30 -34
age40 -44
age50 -54
age60 -64
age70up
Age
Dist
ribu
tion
Coe
ffic
ient
s
Saving
Investment
Coefficients on Current Account
-3
-2
-1
0
1
2
age0-14 age20 -24
age30 -34
age40 -44
age50 -54
age60 -64
age70up
Age
Dis
trib
utio
n C
oeffi
cien
ts
All Industrial Asia
Summary of Demographic Effects
• Statistically significant effects on saving– Wide variations across regions– Dominated by Asia– Weak impact in industrial countries
• Significant for government and private saving
• Parallel, but smaller, effects on investment• Most pronounced for current account
balance.
Future Implications
• Demographic effect on saving is already negative in industrial countries– Contrary to Bernanke’s expectations– But effects are small relative to future
projections• Large uncertainty about demographic
impact – Industrial countries versus Asian experience
Expected Saving, Europe, Various Specifications, 1960-2050
0
0.1
0.2
0.3
0.4
0.5
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
all polynomial oecd polynomialoecd categorical
Expected Saving, Japan, Various Specifications, 1960-2050
0
0.1
0.2
0.3
0.4
0.5
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
all polynomial oecd polynomialoecd categorical
Expected Saving, United States, Various Specifications, 1960-2050
0
0.1
0.2
0.3
0.4
0.5
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
all polynomial oecd polynomialoecd categorical
Conclusions• Strong statistical evidence of life-cycle impacts
on saving– Dominated by Asia– Weak effects in industrial countries– Affects both public and private sectors
• Currently in early stages of a demographic-induced decline in saving within industrial countries.
• Current saving ‘glut’ largely a product of weak investment, not strong saving.
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